Business facing a grim 12 months

Concern by auditors that companies could collapse over the next 12 months has risen from 10 per cent last year to 13 per cent, as experts predict that business conditions will get worse before they improve.

South Australian construction company Bianco Structural Steel was shut down yesterday after receivers determined the business was not viable, leaving about 50 staff likely to lose their jobs. Bianco Structural Steel and Bianco Construction Supplies were both put into receivership last year, with liabilities of about $60 million.

The closures follow a horror run for the retail industry, with major brands including Colorado and Borders ­collapsing and book chain Angus & ­Robertson under threat.

Overall, corporate collapses have risen by 4.4 per cent in the 11 months to May 31, despite already sitting at record highs.

Contrary to perceptions, the increase was substantially led by the mining-rich state of Western Australia, where insolvency appointments rose more than 20 per cent.

“This financial year will continue to be tough on Australian businesses," Taylor Woodings partner Quentin Olde said.

The accounting and insolvency firm predicts that business collapses will increase this year as “the full impacts of the strong Australian dollar are felt by tourism, exports and other sensitive industries".

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“The continued strong Australian dollar, the Australian Taxation Office taking a stricter policy on tax debts, slower movement of money through the economy and the continued general economic and political uncertainty, in our view, confirms that there remains a lack of evidence to suggest that the local and global economy is recovering," Mr Olde said.

The latest figures from the Australian Securities and Investments Commission show that 13 per cent of audit reports contained an emphasis of matter, compared with only 10 per cent in June 30 reports last year.

When signing off on accounts, auditors are required to provide an assurance that companies will remain solvent over the next 12 months. Where there is uncertainty about whether a company can continue as a going concern, auditors are required to flag the accounts with “an emphasis of matter". The technical accounting warning is one step below a “qualification", which is the most serious warning about potential irregularities in ­company accounts.

Despite the figures, insolvencies are still rare enough to draw a crowd. In Melbourne, the last days of the ­Borders store in Carlton this week resulted in it being packed with those catching a final glimpse of the store and hunting for last-minute bargains – and not just the books.

There was a sense of mourning among some shoppers as they perused the bare shelves, tables, chairs and light fittings, all up for sale. Most shop fittings sported “sold" stickers, but you could still buy a sign marking the non-fiction, literature or children’s book sections for $10.

Administrators Ferrier Hodgson were clearly aiming to do the best for creditors, with a second-hand toilet roll holder available at $20 and a used two-ring binder for $5. “I’m not hearing anything positive across states or industries," the chief executive of the Small Business Council of Australia,
Peter Strong
, said.

“Business is bad and people are not feeling confident about the future."

The increasing uncertainty of business and consumers has been reflected in a string of recent economic indicators.

The Westpac-Melbourne Institute Survey of Consumer Sentiment showed subdued confidence in May, with the index dropping 1.3 per cent.

The Australian Bureau of Statistics retail trade figures in May were weaker than expected, dropping 0.6 per cent compared with a 1.2 per cent increase the previous month.

Building approvals fell steeply, by 7.9 per cent, following a 0.3 per cent fall in April. The RP Data-Rismark Hedonic Home Value Index showed capital city home values fell 0.3 per cent in May, down 1.2 per cent over the previous three months.

The ANZ Job Advertisement Series revealed job ads dropped 6.5 per cent in May, the biggest decline since March 2009.